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Interesting Research Report From Raymond James


Thebean

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The report is more focussed on the revenue decline that is going to occur as Encore moves east, rather than route profitability.

That being said, with the magnitude of revenue that is going to occur, profitability will suffer, as it has on every other route where LCC competition is fierce.

No route can tolerate the scale of revenue decline and maintain the same profitability metrics. If that were the case, all the "airline within an airline LCC's" would never have been attempted. Why bother if profitability remained unchanged?

Chorus's network casm on a 391mile asl was 29.1 cents excluding interest. The asl of the 7 routes discussed was likely a little shorter than that which would push casm up. Knocking it back to 26 cents to account for the Q400 is going to be in the ball park. If it is lower, it means that the balance of the flying's unit costs will be higher to push that network casm to the reported 29 cents and Encore competes on numerous routes that are Dash 8 flying.

If that is the case, I'd anticipate WJ going after those routes, just as WJ focussed on anywhere the CRJ's operated 15 years ago. There's always a weak link in a chain. For example, there are no Q400's flying to Penticton these days, and as Ben pointed out, AC has a finite supply of Q400's, though they could obviously order more). Does AC repatriate the Q400's operating in Western Canada back east to deal with Encore in the next few years?

It was lovely to read MD2's stellar rebuttal to the research report. His logic is akin to the Flat Earth Society demanding that NASA and MIT prove to them that the earth is not flat, regardless of all evidence to the contrary. Why should the Flat Earth Society have to present any analysis or data supporting their version of the world?

The last explanation was a typical Porter "happy pill" response. Instead of a researched rebuttal, supported by verifiable data, the response is a rather arrogant, "it is so obvious, it need not be said".

I would imagine your current and potential future shareholders who will likely be asked to pony up when losses start to pile up down the road will be less than satisfied when they ask, "if I shovel more of my cash in the company, will the company ever be in a position to return my cash and an adequate return on my investment in any sort of timely fashion?" and the response is "well, Mr Shareholder, the answer is so obvious that it need not be said".

I would imagine your executives will be spending time in clinics having multiple door handles surgically removed from their backsides with that sort of response. And remember, all those shareholders will have carefully analyzed Raymond James's report prior to those meetings. They are going to have some very, very tough questions that are going to require very detailed answers, something Porter rarely produces. The Bay Street Bullshirt meter is pretty attuned these days. No one likes to lose money.

BTW, I got a chuckle from MD2 who copied my past repeated references to Muhammad Saeed al-Sahhaf, Iraqi's former information minister. Try to come up with something a wee bit more original next time, old chum.

In summary, another stellar response from MD2. I hope your company comes up with something a little better than this internally to deal with what's headed down the tracks. It's going to take a lot more than bag fees to make up for the revenue cliff that's headed Porter's way.

No one knows how WJ is / isn't doing in the triangle, however here's what we do know.

We do know how they are doing, at least load wise, on YYZ-LGA. The DoT info is available to anyone with an internet connection and a heartbeat.

We do know that on a macro-basis, WJ produces verifiable near industry leading profitability metrics.

We do know that WJ will have a fleet of around 45 Q400's within a few years.

We do know that thus far, WJ has used the Q400's largely to substitute NG flying, thus freeing up airframes to operate on longer routes. Even so, judging by the difficulty of getting seats to southern destinations in the winter and during the summer, there hasn't been any issues finding places now, and in the future to place 737's free'd up by the Q400's. I can see WJ becoming far more pragmatic down the road when it comes to hard and fast cut over dates between summer and winter scheds, thus generating more 737 flying.

We have seen that even with substitution, capacity on YYC-YEG is pretty much the same. More frequency, same capacity, which is what people want. I think it's pretty safe to say that's what's likely to happen in the Eastern Triangle as Encore expands. If Porter believes WJ is going to reduce capacity in the triangle, they are delusional.

If Porter's product was so wildly successful, they wouldn't operate a network with the lowest load factors in North America and the fleet wouldn't have been all but stagnant over the past few years.

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and helps his own personal stock holdings.

For the record, I own very, very little of WJ and none of any other Cdn airlines. I sold most of it off in the run up to $28....

Just as there are numerous AC people who own WJA, I'd have been all over Porter as an investor if I thought I could make money on it. I just don't see it and judging by the return Porter shareholders have seen from their investment 8 years ago, I was right.

I guess I was wrong about WJ being successful, jetBlue being successful, that CP would fail, that Royal / C3 / CanJet sched would fail, that AC would go CCAA and countless other predictions.

Let's not confuse cash flow with profitability. There is a reason why Porter has been in near permanent seat sale mode and has had to place full page ads selling fares way out in the future at rates that would make Jetsgo blush in the three Toronto daily papers for the past 4 years.

Ben's analysis shows that on an advance purchase basis, even with a Q400, not exactly the work horse of the world's LCC fleet, Porter's fares are competitive with what is going on in the West and elsewhere where WJ operates.

Ben shows that the close in fares, and therefore yields,are dramatically different on the 7 routes out of YYZ he looked at. There are countless others.

Without the extremely high close in fares to average up LCC type advance purchase yields, Porter's ability to generate rasm that exceeds their casm, (which is already precarious), is going to be enormously diminished.

I have yet to see compelling evidence to the contrary and judging from history, I doubt I'm going to, and certainly not from the Happy Pill fueled Porter supporters on this site.

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Mr. bean, I didn't realize you had all rights to all materials pertaining to Iraq's former (mis)information minister. You may perceive whatever you say as original and true, but hopefully you don't actually think that you were the first to use that joke? It's actually very ironic. Even as you continued repeating the old outdated Iraqi minister line, I couldn't help but notice a striking resemblance between his comments during interviews and the posts of a certain "analyst" on various aviation forums vaunting WestJet's economical virtues and his own accomplishments...ironic indeed.
You worry more than you should about Porter's investors, but I'm sure they are privy to everything they need to be, and at any rate boardroom discussions are not for public forums where corporate spies possibly posture and bait for information! After 8 years of being wrong about Porter's imminent demise, I think you're just happy that someone else is doing it for you, or at least joined you! Fare well.

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And still no line of reasoning to counter the highly detailed and factually supported arguments in the RJ report....

Just vague denials that mimic the company line in the internal memo from "Bob" downplaying the analysis without a shred of evidence that supports any sort of alternative outcome. To paraphrase, "regardless of the analysis and evidence to the contrary, we firmly believe the world is flat."

Pretty typical of Porter.

Rather than backing claims with solid analysis and verifiable evidence, the strategy is simply to denounce the analysis as "essentially worthless", suggest the report is a vast conspiracy as a result of Raymond James not being included in the Consortium for Porter's stillborn IPO attempt in the late spring of 2010 and claim that various revenue initiatives and cost savings plans are being contemplated that will neutralize a very significant revenue reduction over the next 24 months.

Wow. That doesn't exactly instill much confidence. When WJ 's future was being questioned in it's early days, they were able to shoot down the misinformation by producing financial statements and l/f data, even when the company was privately held and under no obligation to do so.

If Porter had that sort of shark repellant in it's arsenal, they'd use it. They don't so they haven't.

Knowing Ben's reputation and understanding of the business, and recognizing that Ben has shat equally on all airlines in Canada over the years if he doesn't like where they are headed, including to my past annoyance, WJ, one has to consider that Raymond James was not included in the 2010 consortium because their analyst recognized it as going nowhere long before the other brokerages figured it out for themselves. Even a cursory look at Porter's financials and metrics for the failed IPO made it pretty obvious to anyone with a brain that it hadn't a hope of succeeding.

As usual, there's quite a bit more to "Bob's" story than meets the eye. Raymond James wasn't included because Raymond James didn't buy into the story. Given the eventual outcome of the IPO, which resulted in Porter raising the grand total of zilch, I'd say Raymond James pretty much nailed the analysis back then too.

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For the record, I own very, very little of WJ and none of any other Cdn airlines. I sold most of it off in the run up to $28....

Just as there are numerous AC people who own WJA, I'd have been all over Porter as an investor if I thought I could make money on it. I just don't see it and judging by the return Porter shareholders have seen from their investment 8 years ago, I was right.

I guess I was wrong about WJ being successful, jetBlue being successful, that CP would fail, that Royal / C3 / CanJet sched would fail, that AC would go CCAA and countless other predictions.

Let's not confuse cash flow with profitability. There is a reason why Porter has been in near permanent seat sale mode and has had to place full page ads selling fares way out in the future at rates that would make Jetsgo blush in the three Toronto daily papers for the past 4 years.

Ben's analysis shows that on an advance purchase basis, even with a Q400, not exactly the work horse of the world's LCC fleet, Porter's fares are competitive with what is going on in the West and elsewhere where WJ operates.

Ben shows that the close in fares, and therefore yields,are dramatically different on the 7 routes out of YYZ he looked at. There are countless others.

Without the extremely high close in fares to average up LCC type advance purchase yields, Porter's ability to generate rasm that exceeds their casm, (which is already precarious), is going to be enormously diminished.

I have yet to see compelling evidence to the contrary and judging from history, I doubt I'm going to, and certainly not from the Happy Pill fueled Porter supporters on this site.

Do you have the winning numbers for this weeks Lotto Max thanks

:cool::cool: :cool:

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Thebean - what is this internal memo over at Porter and how does one get a copy?

I would suggest chatting with folks at Porter who are pragmatic enough to understand the big picture but recognize they have families to feed and want to stay employed for the time being. I'm sure they'd be pleased to get you a copy of the memo addressed to "all Porter team members".

Interestingly, it is over "Bob"'s signature and in line 13, it specifically refers to Billy Bishop Airport helping "shield us from intense competition". I wonder who "Bob" is?

I bet the Competition Bureau would be intrigued by that comment.

Who wouldn't want to have a business that was artificially shielded from normal business conditions that permitted some of the highest yields per mile in North America over the sorts of routes flown?

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bean,

I'd like to point out the obvious. Generally a company is responsible to four groups, albeit in different ways:

1. To its shareholders, be it private or public: to show its plans and directions for profit and an overall income.

2. Its employees and suppliers: to pay them fairly and on time and appropriately keep them informed and involved in company affairs.

3. Regulatory agencies that oversee the industry: to follow the rules and regulations.

4. Its customers: to provide them a safe and efficient product, and a good value to their satisfaction.

The only way that Porter may be responsible to you, is under number 4 after which you can make a judgment whether or not to use them again, or to recommend them. Other than that, you have no especial right or claim to anything. Which contrary to my usual practice leads me to ask the question that for a self-professed former WestJet executive with an 8 figure bank account as you have pointed out, why do you obsess so much over Porter?! It can't possibly be healthy...

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Slightly off topic

Was trying to rack my brain about a sixties cartoon show, then i found:

Mr. Know-It-All was a popular supporting segment of The Rocky and Bullwinkle Show. There were 50 produced. The segments featured Bullwinkle, in his typical know-it-all fashion, pompously giving advice and instruction on any and every given topic, such as how to catch a bee or how to sneak into the movie theater without a ticket. Of course, true to Bullwinkle's nature, something would always go humorously and disastrously wrong by the end. Boris Badenov plays a variety of roles as Bullwinkle's antagonist in most of the segments.

Now I remember..... anyone else remember watching.....

. :cool::cool::cool:

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bean,

I'd like to point out the obvious. Generally a company is responsible to four groups, albeit in different ways:

1. To its shareholders, be it private or public: to show its plans and directions for profit and an overall income.

2. Its employees and suppliers: to pay them fairly and on time and appropriately keep them informed and involved in company affairs.

3. Regulatory agencies that oversee the industry: to follow the rules and regulations.

4. Its customers: to provide them a safe and efficient product, and a good value to their satisfaction.

The only way that Porter may be responsible to you, is under number 4 after which you can make a judgment whether or not to use them again, or to recommend them. Other than that, you have no especial right or claim to anything. Which contrary to my usual practice leads me to ask the question that for a self-professed former WestJet executive with an 8 figure bank account as you have pointed out, why do you obsess so much over Porter?! It can't possibly be healthy...

I guess all analysts are obsessive. It goes with the territory. One can't analyze the goings on in the domestic industry without including Porter in the equation.

When company claims and independent analysis are as widely divergent as is the case with Porter, it begs discussion, backed up with verifiable data and well supported arguments.

Conversely, if I thought Porter was a sure fire winner, I'd have been knocking on the door looking to throw some fairly serious cash at it.

I've been to the Airline Analysis Rodeo more than a few times on more than a few continents and I know my way around the business better than most. A pretty good measure of an analysts accuracy is his or her bank account. There's very good money to be made if you get it right. I'm sorry if you have a problem with that.

After nearly 20 years, my Bullshirt Meter is pretty finally tuned and it's been ringing loudly for quite some time on this file.

It is great fun poking holes thru Porter's claims and then watching Porterites, starting with you, vehemently refute everything, with not a stitch of evidence to support the denial and counter claim. I keep offering up rope and you keep hanging yourself with it. That is an endless source of amusement to me, not to mention that it consistently supports my theory.

If Porter was doing as well as claimed, that sort of info would have made appearance, either publicly or privately. It hasn't. All I have seen is evidence to the contrary. Out of respect to my various sources, I'd never post it publicly, but I can post other evidence that points to the same conclusions.

How are those revenue initiatives coming along? Better get at it. There's a cliff coming up down the turn pike.

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Air Canada is a good airline, and so is WestJet. I think that this winter will be tough for both as it seems that the market will be flooded with copious quantities of ASMs. Air Canada has lowered their CASMs with the introduction of Rouge. WestJet does have a lot of cash to be competitive and still survive a JetsGo type fire sale should one be on the way. It still comes down to which airline has the lowest cost per ASM.

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Ben has been negative on ALL Canadian airlines over the years at one time or another. Like it or not, no one produces the in-depth stuff he produces. No one is even close ....

Other than 2005 and 2006, which coincided with WS only period of Unprofitability, when has Ben Chernaivesky ever been negative on WJA.T?

Also if memory serves Ben was the last one negative and first one positive on WJA.

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Other than 2005 and 2006, which coincided with WS only period of Unprofitability, when has Ben Chernaivesky ever been negative on WJA.T?

Also if memory serves Ben was the last one negative and first one positive on WJA.

While it obviously pains some to admit it WestJet has been very profitable from the start with the exception of one year out of the last 18. That was a pretty explainable aberration that was to be expected when you retire an entire fleet type 3 years earlier than the accountants had planned for.

The business model has been altered, tweaked, modified, blown up yet is still a great employer and profit generator.

Why wouldn't he be positive on WJA? :Scratch-Head:

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